IR35 / S660a
IR35
IR35 legislation is an attempt by H.M. Revenue and Customs to tax a freelancer or subcontractor trading through his/her company as though they are an employee of the end client.
Your company is effectively ignored and PAYE/NI is assessed on 95% of the income.
All freelancers or subcontractors need to be aware of this legislation as it is a potential "pit fall".
IR35 is only relevant if it can be proved that you are a deemed employee of the end client.
If it can be shown that you cannot be such an employee then IR35 cannot apply.
Proving that a worker is an employee is not the same as proving the worker is self employed, that is an entirely separate argument and not relevant to IR35.
The decision whether a worker is or is not an employee is carried out by a review of the terms and conditions of the contract for services, and, the working practices.
We have vast experience in determining employment status and are accredited by the Professional Contractors Group to give IR35 advice and to carry out IR35 reviews.
Please do not hesitate to contact us should you require further information on IR35 or an actual IR35 contract review.
S660a
Section 660a rules were originally introduced to prevent family members reducing their overall tax liabilities by gifting income or assets to lower rate tax payers within the family.
In respect of freelancers and subcontractors the "gifting" of income relates to company shares being split normally between husband and wife.
This allows the use of two personal allowances and two Income Tax basic rate tax bands before any family dividend income is taxed at the higher rate of Income Tax.
From H.M. Revenue & Customs point of view the wife’s dividend income has derived from her husband’s work i.e. from the shares the husband has "gifted" to his wife.
As such, H.M. Revenue & Customs may attempt to tax the wife’s dividend income as if it had been received by her husband. This would create further Income Tax to pay if the husband’s income is large enough to reach the higher rate threshold for Income Tax.
If you are a knowledge based worker and your spouse, parents or siblings own shares but do not work for the company, then it is possible that H.M. Revenue & Customs could enquire into the position.
Such enquiries are extremely rare, however, as a freelancer or subcontractor you need to be aware of the legislation.
